You are here

High-speed traders in Netherlands poised to escape EU bonus cap

Mon, Jan 21, 2019 - 11:18 PM

[BRUSSELS] Dutch high-speed traders, some of the most active in the world, will probably escape having their bonuses capped next year in a win for the effort to protect Amsterdam's growing status as a post-Brexit industry hub.

Negotiators in Brussels have worked for months to exempt the sector from caps in upcoming European Union legislation. The result would allow the Netherlands to set its own curbs on pay - or no restrictions at all, extending the current regime that gives proprietary firms a free hand in compensation but hits bankers with a bonus cap of 20 percent of fixed pay.

Under the agreement, announced earlier this month, EU member states would be allowed to impose bonus restrictions "on all or on specific types of investment firms." The change, which still awaits a final sign-off, is included in new capital regulations for investment firms, including money managers and proprietary traders who wager their own money in equities, derivatives and commodities markets.

If confirmed in talks with the European Parliament, which kick off on Wednesday, the deal means "that a strict bonus cap will apply to investment firms and that proprietary traders will remain exempted," a spokesman for the Dutch permanent representation to the EU said by email.

Market voices on:

The move may further burnish Amsterdam's image as a friendly home to proprietary-trading firms in the EU. The Netherlands' homegrown speed traders are most prominent in exchange-traded funds and similar products. Already, the Dutch capital has enticed algorithmic traders Quantlab Financial LLC, Jump Trading and Radix Trading LLC to move there; trading venues run by Cboe Global Markets Inc, Tradeweb Markets LLC and Bloomberg LP, the parent of Bloomberg News, are doing so as well.

The legislation is intended to replace existing capital rules that are on course to impose caps on speed traders at Flow Traders, Optiver BV and IMC Trading BV. Regulators had exempted them from the restriction for years until the European Banking Authority, which sets standards for the entire EU, demanded the Netherlands apply the bloc's payout restrictions like other countries. Those bonus caps are set to start in 2020.

Flow Traders is currently the only publicly-listed speed trader in the Netherlands. A bonus cap "really would have impacted them, because the talent pool is quite limited," especially in Europe, Anil Akbar, an analyst at Kempen & Co. in Amsterdam who rates the stock as neutral, said by phone. "They have to compete with the likes of Google, Facebook and other trading houses that are there in other countries."